Gold Price at Kenya Stock Market hits Historic Highs

Gold exchange-traded funds (ETFs) rose to their highest level since listing on Kenya’s stock exchange in 2017, giving investors access to the global yellow metal market in local currency.

Investors on the Nairobi Securities Exchange (NSE) can purchase 400,000 gold bullion debentures, each worth 0.01 ounce of gold.

The New Gold ETF closed at Sh2,606 at the close of trading on Thursday, up Sh2,572 from the previous day and Sh2,165 since the start of the year, after the premium metal rose to its highest level since early February.

The rise in global gold prices follows problems at Swiss lender Credit Suisse, as well as renewed fears of a global banking crisis, which has pushed traders to the safe-haven metal.

The NSE ETF price is determined by global gold prices and the US dollar rate, with the strengthening of the US currency increasing the metal’s price at the Nairobi bourse.

On Thursday, spot gold was trading at $1,924.63 per ounce, having reached its highest level since early February.

This, combined with the shilling’s weakness against the dollar, which hit a new low of Sh129.76 on Thursday, has pushed the value of Kenya’s New Gold ETF to an all-time high.

“ETFs are just one of the safe-haven avenues for foreign investors as speculation remains the order of the day as characterised by the equities sell-offs,” observed Ronny Chokaa, a research analyst at Genghis Capital.

“It is possible that the price of the ETF varies without any significant volumes trading as the price is dictated by the price of the underlying asset [gold prices in the international market].”

Investors in the New Gold ETF are holding onto the asset, as evidenced by the NSE’s muted trading amid increased equities turnovers.

Because the ETF’s price is based on the underlying asset — the current price of gold — investors in the asset have realized price gains without the need for trading.

Gold ETFs are commodity funds that trade like stocks and have become a popular investment vehicle.

Despite the fact that they are comprised of assets backed by gold, investors do not actually own the physical commodity.

Instead, they own small amounts of gold-related assets, which diversifies their portfolio.

They enable investors to gain exposure to gold through smaller investment positions than are possible with physical investment and futures contracts.

To diversify from equities and bonds, the NSE has been investing in new infrastructure, including the trading of new products such as ETFs.

The New Gold ETF, or Absa’s gold-backed exchange-traded fund, was first listed on the Johannesburg stock exchange in 2004, but it has since had secondary listings on exchanges in Botswana, Nigeria, Mauritius, Namibia, and Ghana.

The Nairobi bourse began trading futures contracts in 2019, offering investors index futures and single stock futures of the bourse’s most heavily traded companies.

After South Africa’s Johannesburg Stock Exchange, the NSE, the main entry point for foreigners seeking to invest in East Africa, became Sub-Saharan Africa’s second bourse to offer exchange-traded derivatives (JSE).

The Next Derivatives Market provides investors with index futures contracts on the NSE-25 share index as well as single stock futures contracts on Safaricom, KCB Group, Equity Group, EABL, and BAT.

The most heavily traded and well-capitalised stocks on the NSE are telecoms operator Safaricom, lenders KCB and Equity, brewer EABL, and tobacco firm BAT.

According to data from the Capital Markets Authority (CMA), foreign investors held 88.15 percent of the New Gold ETF, or 233,600 units, indicating that offshore investors are reaping the majority of the gains.

Local individual and institutional investors, on the other hand, own only 4.42 percent and 7.43 percent of the ETF units, respectively.

The failure of Silicon Valley Bank in the United States, as well as concerns about the financial health of European banks, have boosted gold prices. Gold is regarded as a safe haven against economic uncertainty.

Credit Suisse shares fell after its largest investor said it could not provide the Swiss bank with additional financial assistance.

Gold rose despite a sharp jump in the dollar. A strong greenback would usually weigh on demand for dollar-priced bullion.

“It’s a total safe-haven trade. There’s a lot of concern about Credit Suisse and now European banks are really coming under quite a bit of pressure. So, it’s a complete flight to safety,” Phillip Streible, chief market strategist at Blue Line Futures in Chicago, was quoted saying by Reuters.

“People are going to the US Treasuries, gold, silver, and the dollar. They’re exiting riskier assets like US equities and economically sensitive metals like copper, platinum and palladium.”